Justice who once tried to kill PPACA now potential savior

(Bloomberg) — U.S. Supreme Court Justice Anthony Kennedy voted to strike down the Patient Protection and Affordable Care Act (PPACA) three years ago. Now, he could be the law's savior.

Kennedy on Wednesday emerged as a pivotal vote as the court weighed whether to strip more than 7 million Americans of the federal subsidies that helped them buy health insurance.

At several points during the hearing, on King vs. Burwell (Case Number 14-114), Kennedy said the challengers' reading of the 2010 statute could violate states' rights by coercing them to set up insurance marketplaces.

"There's a serious constitutional problem if we adopt your argument," he told the lawyer challenging the tax credits.

Kennedy's questions suggested he was at least a potential fifth vote to back the administration's argument that the law, President Barack Obama's signature legislative achievement, provides the credits to purchasers in all 50 states.

"He's definitely the justice who's in play," said Cory Andrews, a lawyer with the Washington Legal Foundation, which backs the challenge against PPACA.

The nine-member court's four Democratic appointees all indicated they agreed with the administration. Chief Justice John Roberts, who cast the decisive vote to uphold the law against a constitutional challenge in 2012, asked only a handful of questions.

Four words

The fight turns on a four-word phrase in PPACA. The measure says people qualify for tax credits when they obtain insurance on an exchange "established by the state."

Four Virginians say those words limit the credits to the states that have taken active steps to set up their own online marketplaces, known as exchanges, for people to buy insurance. The other states, mostly Republican-controlled, declined to do so and left the job to the federal government.

The Obama administration is urging the court to look beyond those four words to the rest of the act and its broad purpose of providing coverage to tens of millions of uninsured Americans.

Kennedy suggested several times that the challengers' reading of the law was the more natural one. "Perhaps you will prevail on the plain words of the statute," he told Michael Carvin, the lawyer representing the challengers.

The problem for Kennedy stemmed from what that interpretation would mean. The administration says eliminating tax subsidies would render insurance unaffordable for millions of people, leaving only the sickest and most desperate in the market and sending rates surging upward.

'Death spiral'

"If your argument is accepted, the states are being told either create your own exchange, or we'll send your insurance market into a death spiral," Kennedy said to Carvin.

The possible solution: interpreting the law as the administration advocates, so that states wouldn't be pressured into setting up their own exchanges.

Kennedy, 78, mentioned the legal doctrine of "constitutional avoidance." Under that approach, the court tries to interpret statutes so as not to render them unconstitutional.

"I was encouraged by the questioning," said Elizabeth Wydra, a lawyer with the Constitutional Accountability Center, which backs the administration in the case. It showed that Kennedy "appreciates the disastrous consequences that result from the challengers' interpretation of the law."

Kennedy, a 1988 appointee of Republican President Ronald Reagan who is often the court's swing vote, also indicated he understood the burden that approach would impose on the states, Wydra said.

"Taking him at his word, he was saying that the court needs to think long and hard about the legal doctrine known as constitutional avoidance," she said.

States' rights

Some lawyers said a ruling along the lines suggested by Kennedy would require a major shift in the court's approach toward states' rights.

"To say it's a serious constitutional problem is to suggest that prior laws that the Supreme Court has upheld against constitutional challenge are in fact constitutionally problematic," said Jonathan Adler, a law professor at Case Western Reserve University in Cleveland who was one of the first to make the case against nationwide subsidies.

Kennedy himself made clear he wasn't sold on one prong of the administration's argument, concerning the Internal Revenue Service (IRS). The government says the court should defer to the IRS view that the tax credits apply nationwide.

"It seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here?" Kennedy said.

Even so, the thrust of Kennedy's questions opened up a new path for the administration to win the case and preserve the law.

"He is the big question mark," Andrews said. "That's the big takeaway from today."

—With assistance from David McLaughlin in Washington.

See also: King vs. Burwell: So what?